Exxon Mobil (NYSE:XOM) released first-quarter results last week, and they mostly fell short. Profits fell 11% to $9.45 billion and EPS of $2 missed analyst expectations. Still, revenues were up 8.8% to $124.05 billion.
Nonetheless, Exxon Mobil stock has a had a lackluster performance in 2012, having gained just 2% — well worse than the broader markets. And they’re essentially flat for the past year. Of course, other major oil companies have struggled too, with ConocoPhillips (NYSE:COP) down 9% and Chevron (NYSE:CVX) off 3%.
So should you consider XOM a bargain and buy Exxon at these levels? To decide, let’s take a look at the pros and cons:
Integrated Model: Exxon has an extensive global platform, which involves exploration and refining, and it also has a large footprint of retail outlets. This system has important benefits. For example, it tends to lead to lower costs because of the large scale. At the same time, the platform helps Exxon understand the emerging trends in the energy business, which make it easier to focus its investments.
Long-Term Approach: Many companies are on the quarterly treadmill. But Exxon looks at how it can benefit from multi-decade trends. A key is its focus on cultivating strong leadership. Consider that the current CEO, Rex Tillerson, joined the company in 1975 as an engineer.
This long-term focus has created a financial powerhouse. Exxon is one of only four U.S. companies with a AAA rating on its debt, according to S&P. The company also has paid a dividend since 1882 and has increased it every year since 1983; XOM currently yields 2.6%.
Natural Gas: Exxon purchased XTO Energy in June 2010 — a deal that provided the company with enormous reserves of natural gas. XTO also is one of the leaders in unconventional sources, such as finding natural gas in shale. True, natural gas is at extremely low prices now, but Exxon certainly will benefit as things firm up.
Production: It is getting tougher to find new energy deposits. And even when discoveries are made, they often are in harsh environments, such as the Arctic or in deep ocean basins. So despite all its resources, Exxon continues to have trouble increasing its reserves. In the most recent quarter, oil-equivalent production fell 5%.
Liability Exposure: The BP (NYSE:BP) oil spill shows the huge risks of the oil business. While Exxon has a good track record, it still is vulnerable to disasters.
Politics: Exxon faces threats like higher taxes, renegotiation of contracts and even nationalization. But the company has little choice but to explore for oil in politically risky countries. For example, it recently struck a mega-deal with Russia’s Rosneft to explore the Arctic for oil. While it could prove to be a great opportunity, the risks are great. Russia has a long history of being hostile to outside companies.
When it comes to Exxon, it is difficult to dredge up criticisms. The company has a top-notch management organization and a valuable integrated global platform. Even with production of crude oil falling, the company has been smart to invest in alternative sources of energy, such as shale. Plus, it seems like a good bet that oil prices will remain high, especially as emerging-market countries continue to pursue growth strategies.
Exxon’s financial stability and consistency might not generate huge returns, but that’s not XOM’s goal — instead, it’s about steady long-term performance. And in today’s volatile world, companies like Exxon will continue to look attractive as a safe-haven play for investors.
So should you buy Exxon Mobil? Yes — for now, the pros outweigh the cons on the stock.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”, “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.